Payroll Tax Problems and Trust Fund Recovery
Payroll tax issues are among the most serious tax problems a business can face. The IRS treats unpaid payroll taxes — especially the employee withholding portion — as a priority collection matter. Early action matters.
What makes payroll tax problems different?
Payroll taxes include both the employer's share and the employee withholding portion. The employee withholding — Social Security, Medicare, and federal income tax withheld from employee paychecks — is held in trust for the government. When a business fails to remit these funds, the IRS treats it as a serious violation.
The Trust Fund Recovery Penalty (TFRP) allows the IRS to hold individual business owners, officers, or employees personally liable for the employee withholding portion — even after the business closes. This means the liability can follow individuals personally. Importantly, the TFRP can be attached to people who had no intent to harm and no knowledge that payroll taxes were going unpaid — including employees with signature authority, bookkeepers, or others who were simply doing their job. Exposure does not require wrongdoing.
Payroll tax matters that may be addressed:
Payroll Tax Questions
What is the Trust Fund Recovery Penalty?
The Trust Fund Recovery Penalty (TFRP) is a penalty the IRS can assess personally against any individual who was responsible for collecting, accounting for, or paying over payroll taxes and willfully failed to do so. It equals 100% of the unpaid trust fund taxes and can be assessed against owners, officers, bookkeepers, or others with financial authority.
Can the TFRP be assessed after the business closes?
Yes. The TFRP follows individuals personally, not the business entity. Closing the business does not eliminate the liability. The IRS can continue to pursue collection from individuals even after the business has ceased operations.
What does a revenue officer contact mean?
A revenue officer is an IRS employee assigned to collect a specific tax liability. Their involvement typically means the situation has moved beyond automated notices into active collection. Revenue officer cases generally require prompt, professional engagement.
Can payroll tax liabilities be included in an installment agreement?
In some circumstances, yes. The terms and availability of an installment arrangement for payroll tax liabilities depend on the specific balance, the business's current compliance status, and whether the business is still operating.
Can someone be assessed the TFRP even if they had no idea payroll taxes weren't being paid?
Yes. The TFRP can reach individuals who had no intent to avoid paying taxes and no awareness that payroll taxes were going unpaid. The IRS looks at whether a person was 'responsible' — meaning they had authority over financial decisions — and whether the failure was 'willful,' which the IRS interprets broadly. Employees with check-signing authority, officers who trusted others to handle payroll, and even outside bookkeepers have faced TFRP assessments. If you have received an interview request or proposed TFRP assessment, early professional engagement matters.
Payroll tax problems require early action.
An intro call can help evaluate the scope of the liability and what options may be available before the situation escalates further.